Scenarios Breaking Down

For the past 6 weeks, I have offered what has now amounted to three plausible scenarios for where stocks are headed over the coming three to four months. While the short-term ups and downs varied, all paths from my perspective ended up at new highs for the major stock market indices. Nothing has changed in this regard and I continue to expect Dow 27,000 by the end of Q2 (June 30).

As with almost every single market analog, eventually, they all break down and find their own path. Remember, markets rhyme all the time but never exactly repeat.

Let’s take a look at the three scenarios we have been watching as they all seem to be breaking down.

If you analyze all three scenarios, you may conclude that stocks seem to be behaving weaker than any of the paths suggest. I would agree with that in the short-term, but not alter my intermediate-term view at all. There are lots of crosscurrents right now, but aren’t there always?

I heard a few pundits as well as anchors opine that Monday’s rout by the bears was all tied to the Facebook news. If that isn’t the single most asinine market statement of the year, I don’t know what is! While Facebook certainly impacted tech stocks, especially those in its own sector, the Facebook data scandal will have absolutely no impact on inflation, GDP, liquidity nor 95% of the companies in the rest of the stock market. You just can’t fix stupid.

Stocks did decline on Monday and Facebook was the story of the day. I am definitely not saying “so what” to the decline as 90% of the volume was in stocks trading to the downside, but I am also not concluding that it was some seminal day and a bear market has begun. Remember, the NASDAQ100 hit an all-time high last week.

Leadership in my four key sectors has been strong with semis seeing an all-time high last week. Banks saw new highs last week. Discretionary and transports are chugging along. With the Dow being the weakest major index, it is certainly not out of the realm of possibilities that it could decline another 1000 points or more and retest its 2018 low. However, in that case I would still expect the other indices to hang well above their 2018 lows. Things will settle down sooner than later.

The Fed is meeting today (Tuesday) and tomorrow with the big announcement at 2:00 PM. I will have my usual special update out shortly.